Burnet v. Logan

Holding

When the value of contractual rights to receive future payments cannot be ascertained with reasonable accuracy, the transaction is open and the taxpayer may recover basis before recognizing gain (the open-transaction doctrine).

Facts

Logan sold shares of an iron-ore company in exchange for cash plus the right to receive annual payments contingent on the amount of ore later mined. The Commissioner sought to value the contingent payment rights at the time of sale and tax the entire gain in the year of sale.

Reasoning

The Court held that the contingent payments had no ascertainable fair market value when received as part of the sale price. The taxpayer was entitled to apply payments first against her capital investment, with any excess taxed as gain only after full basis recovery.